Top five disruptions in FinTech

Financial technology, aka FinTech, has changed the landscape of the financial sector around the globe by promoting greater inclusion, economic growth and other national and global development goals.

The rapidly evolving FinTech developments offer unprecedented opportunities for financially excluded or the underserved consumers around the world than the traditional banking system could ever provide, and thereby, catalyzing efforts, not only to achieve the Universal Financial Access goal set for 2020, but also playing a big role in achieving many of the United Nations 2030 Sustainable Development Goals (SDGs) including the SDG 1 i.e. poverty eradication, zero hunger (SDG 2), gender equality (SDG 5), promoting economic growth and jobs (SDG8).

Here's a look at the top five fintech trends: 

Mobile banking

Rapid technological advancement and increasing penetration of mobile phones and the internet has facilitated 24/7 access to financial services, especially in the hard-to-reach areas where traditional or brick-and-mortar bank branches can't offer services. Mobile banking offers services such as account creation (with or without linking to a financial institution), fund transfer, bill payments, transaction review, bank account management, online purchases etc with great convenience, ease to access, security and much more, anytime, anywhere. Mobile banking offers unprecedented opportunities for access and usage of basic financial services such as bank account, payment services. A simple mobile phone can make access to financial services but when coupled with the internet, it expands the range of possibilities. The explosion of online payment applications has also transformed the nature of mobile banking.

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In Sub-Saharan Africa, mobile money is the key driver of financial inclusion, according to the Global Findex Database 2017 report that highlights the significant use of digital technology, notably mobile phones and internet to conduct financial transactions.

Blockchain

FinTech companies and the financial industry, as a whole, is trailblazing the way forward to seize the opportunities of decentralized, distributed and public digital ledger technology called Blockchain. Using distributed-ledger technology is assisting financial services providers to lower the worldwide cost of cross-border payments, securities trading and compliance. The increased concerns about security have made blockchain an important tool in the financial industry to build trust between consumers and business. The primary use of blockchain today is as a distributed ledger for cryptocurrencies or digital currencies, such as Bitcoin and Ethereum which will enable financial institutions to decrease reliance on cash. Digital currencies ( both electronic money and virtual currency) are driving fundamental change in the connected economy by offering secure payments options while reducing transaction times and costs.

Given that digital payment systems have been progressing fast, many central banks around the world are actively considering issuing Central Bank Digital Currencies (CBDCs) to enhance payments systems and drive financial inclusion. CBDCs may help banks reduce the burden of printing, dispensing and maintaining physical money. Digital currencies offer a lot of advantages over traditional currencies.

• Unlike traditional paper currency or coins, virtual currencies are immediately available, any time and anywhere
• Fast and immediate transactions without the intermediation of a third-party
• More anonymous and more transparent than other forms of online payment
• Low remittance costs

 

Artificial intelligence and machine learning

The use of advanced analytics and artificial intelligence (AI) are presently experiencing a peak in development. Financial institutions are adopting them to manage very large volumes of data and information coming from their customers. AI has changed the traditional financial services picture, ranging from banking and insurance to analysis and asset management.

• Robotic Process Automation

Combining Artificial intelligence (AI) and machine learning capabilities, Robotic Process Automation (RPA) delivers timely and accurate data without any human intervention, while complying with industry regulations and standards.

• Chatbots for customer service

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Many banks have introduced AI-powered banking applications such as chatbots with conversational skills for enhanced customer engagement and experience. These action-oriented chatbots provide real-time answers to a host of customer queries 24 x 7, thereby helping banks to save up-front costs and time. Financial institutions are increasingly investing in chatbots to enhance customer satisfaction without human intervention.

Regtech 

Regulatory technology, aka RegTech, is a niche disruption in the financial sector that leverages technologies such as AI and ML to provide reliable and cost-effective digital regulatory solutions including Activity-monitoring tools and training tools, risk management tools, to name a few. In simple terms, Investopedia defines Regtech as the management of regulatory processes within the financial industry through technology

The RegTech sector is at an early stage of development and is capable to deliver unprecedented value. The global RegTech market revenue is projected to hit USD 7.2 billion by 2023, growing at a CAGR of 25.4 percent during the forecast period 2018-2023, according to a report from ResearchAndMarkets.com. 

Let's explore a few potential benefits of RegTech:

• Real-time data analysis

Financial institutions or fintech companies can gain the ability to act in real-time via technologically advanced RegTech solutions.

• Risk management

RegTech solutions utilize emerging technologies including machine learning, cloud computing, blockchain and artificial intelligence to assess and address risk exposure and compliance issues.

• Regulatory compliance and Data management

The financial industry generates a huge amount of data that needs to be strategically and effectively managed while complying with the latest government regulations and standards. Utilizing AI and machine learning, RegTech provides better and cost-effective solutions to store, analyze and manage the data while ensuring transparency and efficiency.

• Fraud and risk management

RegTech solutions based on cloud computing, big data analytics and artificial intelligence such as the e-KYC (Know Your Customer) are used to identify and mitigate potential risks and Predictive analytics to identify future risks.

Despite the unprecedented opportunities RegTech promises to offer to the financial industry, it is still less explored fintech trend owing to the high cost of investment, dynamic regulatory landscape and lack of understanding about the implications.

Biometrics for authentication 

Financial institutions are increasingly turning to biometric technologies like voice and face recognition, fingerprint scans, and retinal scanning, to authenticate users identity, ensure data protection and avoid transaction frauds.  Biometric authentication eliminates the need to remember multiple long passwords or security questions.

For example, the Indian government implemented the biometric identification system, known as Aadhaar, with a motive to unlock financial account ownership, loan applications, social protection payments and more, which in turn, pushed the share of bank account holders, with big gains among women and poorer adults. India's Aadhaar system is one of the most widely discussed ID systems and has also received international attention and praise for its efforts for facilitating financial inclusion.

(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)